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Need help understanding a budget.

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poorhouse84
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Need help understanding a budget.  Reply with quote  

Hello.

I have some questions about help with understanding a budget. I found this message board and figured you all might be able to help.

I've been on and off trying to do a personal budget since about 2008. I have never been successful in fully implementing one. I know this is the key to gaining control of my money. My wife and I were talking the other night and we want to finally sit down and do this. In short, we face the same problems that many others do, in that we live week to week, frequently come up short, and are always having disagreements and hurt feelings about not having any money.

To start, I have a few reasons that I have not been able to stick to a budget. I'm going to list a few of my problems:

1. I am a very detailed person. I like for things to be insanely organized. I started trying to do the budget in excel around 2008 or so, and I have successfully used it for maybe a few months since then. I have trouble staying with it because I create a budget that is too complicated. I seem to over categorize. I have trouble grouping things together into generalized categories, so I end up with way too many categories. I feel like everything being broken down will help me understand it, but the reality is that it becomes too complicated to just be "simple."

2. Pay variations. I work on an hourly basis. I also get a lot of OT. I'm not going to write a book or go into a page long explanation on this alone, but understand this: My job is guaranteed OT, so much so that it is factored into my budget. I know the correct way to live off of OT pay is to live off of the regular time pay, and then bank the OT. I get that, but that isn't the way I currently am. I would love to get to that point, but it won't happen until I get my budget under control. Since I work varying amounts of hours, my pay can change drastically from week to week. It usually works out to about the same, but if I ever take any time off, it can be hundreds of dollars short. Very frustrating. The other part of the frustration is that I am paid every week, and my wife is paid biweekly. My wife's pay is consistent in that she gets no OT, but she works a set amount of regular time hours.

1. Bills being due at different times of the month. Right now, we have everything dispersed kind of evenly throughout the month. We group certain bills into each week, and try to pay them then. Sometimes I wonder though, would it just be easier to move all due dates to the first of the month. It would avoid the juggling of money to hopefully have enough when something becomes due throughout the month, which is the problem we have now.

4. The fourth thing that bothers me is hard for me to explain, but is related to #3. Since we are paid on a weekly basis, we tend to look at the funds we have for bills throughout the month by the week, and not necessarily by the due dates. Then there is the issue of some months actually having a fifth payday, or a third in my wife's case. For example, if every month was a set amount of days, and the pay came on the exact same days in each month, , due dates and all that would be perfectly on schedule. Since months vary in number of days and it causes due dates to fall at different times within the weeks, sometimes we are short and have to wait a few days until getting paid. I hope that explanation makes some sense.

Any advice on hour to deal with these issues would be great. I really want to do a budget and my wife does as well, but the stuff above is crippling us.

Thanks
Post Mon Nov 02, 2015 9:21 pm
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oldguy
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Look up both of your annual net pay for last year. Divide that by 12, that is your average monthly net income. Base your budget on that number - and put an extra $1000 cushion in your checking account to cover the occasions when your monthly cash-flow out and monthly cash-flow in do not match.

As for your item #2 about the "correct" way - not true, the correct way is to account for your "real" income stream.

As for arguing about budget. We agreed on our Investment Life Plan, budgeted for how much we kept, not how much we spent. Ie, we put our priority on funding the 401k first - and then we were free to spend everything else on whatever we wanted, safe in the knowledge that our Plan would make us millionaires.
Post Mon Nov 02, 2015 9:45 pm
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poorhouse84
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Can you elaborate more on the real income stream?

Thanks
Post Mon Nov 02, 2015 9:51 pm
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oldguy
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The 'real" income stream is the one that is in your paychecks, you get 52 checks per year, your wife gets 26 checks.

And your bills are tied to months, 12 times a year. It's hard to match 52 and 26 with 12, lots of odd numbers, wife gets two extra checks a year, you get 4 extra checks. But don't try to make it match.

Look at your W2's, subtract your taxes, etc, and use that number. Divide it by 12, that is your 'net' monthly income. Use that as the baseline for your budget. But put an extra $1000 or $2000 into the checking account to cover the bills in the months just before a 3-check month.
Post Mon Nov 02, 2015 10:14 pm
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poorhouse84
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Thank you. We worked on this a little more last night.

One thing I am considering doing is making every single bill we have direct draft. A few of them already are. I believe vehicle insurance and life insurance are. The rest are manually paid. The reason we have not changed them is because we are not disciplined enough to keep the money in the bank for the draft dates. I'm almost ashamed to admit that, but that's the truth. The problem there is we start abusing due dates, and honoring the grace periods right on the limit. Before we know it, we are two weeks behind on certain things and could not pay it on time if we wanted..since we live week to week.

One thing that concerns me about that though is bills like cell phones. I can get on board with bills that stay pretty constant, and most of them do. But I know that there is always a possibility of having a very large bill happen - whether it be a mistake or intentional - to the bills like cell phones or power. Maybe the water bill in the event of a busted pipe or such. I know that it could take months before we get a cusion of $1-2K built up to take a hit like that. I guess some form of insurance would be actually being able to see the bills before they are drafted. I'm sure this is possible but I am not sure how? Maybe online accounts with everything so we can see it? I do know our power company does budget billing. This could be an option as well.

At the moment I am considering splitting our bills up into groups of four. That way, every week we have a 4th of the bills to pay. I consider months as 4 weeks, since we only get those five week months 4 times a year. I have always considered those as extra paychecks completely. What has me confused about this is the concern i posted int he original post. All days of the month don't fall the same, so we may have weeks where something becomes due and gets drafted before the money is there.

I guess the two options here are to have extra money in place like you suggested, and also to take advantage of grace periods for a few days if needed - but that would not be an option if direct draft were set up on everything. If it was, the bills are getting drafted no matter if the money is in there or what.
Post Tue Nov 03, 2015 2:50 pm
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oldguy
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quote:
At the moment I am considering splitting our bills up into groups of four. That way, every week we have a 4th of the bills to pay. I consider months as 4 weeks, since we only get those five week months 4 times a year. I have always considered those as extra paychecks completely. What has me confused about this is the concern i posted int he original post. All days of the month don't fall the same, so we may have weeks where something becomes due and gets drafted before the money is there.


IMO, you are overthinking this. All of your ideas are directed at cash-flow, ie, trying to match your 6 paychecks against your bills. But NONE of your ideas affect the outcome. Eg, the budget-billing of the power bill - that has no effect on your annual power bill, if it is $2000 a year one way it will be $2000 the other way - no change. Same with rent )or house payment), if it is $12,000/yr it will be $12,000 whether you pay at the first of the month or the middle of the month (after the grace period).

Try a top-down view - look up your annual incomes on your tax returns and add them. Then list your annual expenses and add them up. That will tell you if what you are trying to do can be done. If your costs are more than your income, it cannot b e done - no matter how detailed your budget sheet is

If it turns out that you need to make a life-style change, it needs to be meaningful. Eg, if your expenses are $10,000 more than your income, quitting a $1000 a year Starbucks habit won't fix it, it has to be meaningful - that means house and cars. The average family spends over half of their income on house/cars.
Post Tue Nov 03, 2015 3:31 pm
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littleroc02us
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Here is what I used to live within my means and to create a budget that works. It's called a Zero based budget. I'm also paid biweekly and so is my wife so that makes it easy, except for those extra 4 paychecks we get a year since there are 52 weeks in a year. We actually don't include those in our income, that is extra money that is invested.
The key is to use a bi-weekly budget which should work fine for the both of you since your paid efvery week and she is bi-weekly. So the way a zero based budget works is you simply create an Excel spreadsheet and list your income on one side and list all bills in another column for half the month. The bills should include items such as: utilities, food, going out, clothing, beer, etc..... Then create another column that includes savings, investments, spending money, something your saving up to buy, etc.... Now form a calculation that simply adds up all of your payments and subtracts them from your income. Your goal is to get to as close to zero as possible.
Another key to this is to first fill in the positive items such as investments and savings first so that you never short yourself on those items.
Lastly, this budget will never work unless you stick to the amount you chose for each category. both of you should sit down and agree on the categories and stick to them. You cannot go over that amount. If you run short in a category you can move money from another category which reduces the amount for that item, but increases the spending amount for the other. ex. Your Target fund is $30 and your food category is $200. You see something at Target for $20 that you need, but you've already spent the Target money. If you move $20 to the Target fund your covered, but now you have $20 less in the Food fund. This method only works if your disciplined and don't cheat.
Good luck!

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Tue Nov 03, 2015 4:20 pm
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poorhouse84
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quote:
Originally posted by oldguy

IMO, you are overthinking this. All of your ideas are directed at cash-flow, ie, trying to match your 6 paychecks against your bills. But NONE of your ideas affect the outcome. Eg, the budget-billing of the power bill - that has no effect on your annual power bill, if it is $2000 a year one way it will be $2000 the other way - no change. Same with rent )or house payment), if it is $12,000/yr it will be $12,000 whether you pay at the first of the month or the middle of the month (after the grace period).

Try a top-down view - look up your annual incomes on your tax returns and add them. Then list your annual expenses and add them up. That will tell you if what you are trying to do can be done. If your costs are more than your income, it cannot b e done - no matter how detailed your budget sheet is

If it turns out that you need to make a life-style change, it needs to be meaningful. Eg, if your expenses are $10,000 more than your income, quitting a $1000 a year Starbucks habit won't fix it, it has to be meaningful - that means house and cars. The average family spends over half of their income on house/cars.


I added up both of our net incomes as suggested and got a number. I then added up all bills including groceries and gas. I then subtracted all bills and got a number. That number is 26% percent of the original number. So in other words, We still have 26% of our net incomes after paying all bills. This remaining 26% would be for things like eating out, clothes, entertainment, etc.

As far as bills, we really don;t have much debt. We own both of our cars, and don't carry much cc debt. Matter of fact I have two cards at the moment, my own, and my wife has a store card where she does most of the shopping for our kids school clothes, and her work clothes. I'd say we are ahead of the curb on many things, we just are not disciplined enough to keep track of our money. This is what I am wanting to change.

As part of the deductions not counted in my net pay, I contribute 4% to a 401k through my employer. They match that 4% and I am fully vested (took 7 years to get to that).
Post Tue Nov 03, 2015 8:05 pm
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poorhouse84
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quote:
I'm already working within an excel spreadsheet, I am just confused because i think I may be making it a little too detailed - like I was saying. I like the idea of switching to maybe a two week budget. Just align our payments and anything else along with her pay dates. Although I'll stil get paid every week, just wait until she gets paid and do all of our spending and such when she gets paid.

Make your spreadsheet simpler. Make two columns. column #1 = Payments, savings, investments, rent, blah, blah. column #2 = income bi-weekly

Then just simply subtract payments from income and make sure it ends up as zero

quote:
I am already trying to figure out how to shop for groceries for an entire month. So far, we have started to shop every two weeks, vs every week. We did this simply because we hate going to the store every weekend. We are trying to get more disciplined with food as wel, because we have a bad habit of not buying enough to get through the week, or other things, and then having to make unnecessary trips to pick up little things throughout the week. We have really been enjoying having a week off for shopping for groceries.

We may just stick to every two weeks, because that aligns our shopping trips with her pay. Plus, we are having trouble how we are going to make things like milk and meats last for a whole month. We plan to buy a deep freezer soon, to help with this, but the milk would still be an issue I suppose.



Here's the thing. If you assign $200 for the 2 weeks, that's all you can spend. It's not any harder then that. If it helps, take out the money, put it in an envelope and thats, that. If you are spending over the $200 that you both agreed upon, then someone isn't following the budget or you're gonna have to shop somewhere cheaper.
Post Tue Nov 03, 2015 8:11 pm
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oldguy
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quote:
I am already trying to figure out how to shop for groceries for an entire month. So far, we have started to shop every two weeks, vs every week. We did this simply because we hate going to the store every weekend.


But that has no effect on your grocery expenses. You can go to the store 52 times and spend $100. Or go 26 times and spend $200. Or go 12 times and spend $433. In all three cases, your groceries cost $5200. Ie, you are struggling with defining your cash-flow, not your budget.
Post Tue Nov 03, 2015 8:45 pm
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poorhouse84
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What I meant by that is that I am trying to cut the number of opportunities we have to spend money. You are correct with your correction of my statement.

Question is, how would I focus more on correcting the cash flow issue. I know I should still spend the budgeted amount regardless if I go to the grocery store once or four times in a month. I should still spend the same amount. Like I said though, I'm trying to streamline things where I accomplish more with less. For instance, If I can get the same amount of groceries by being organized and going to the store once a month, why be unorganized and go 7 times. It just makes better sense, and also makes it easier to keep track of spending.

I'm apologize for being so long winded and ignorant about this. This budget has been something I have struggled to comprehend since I first started messing with it.
Post Tue Nov 03, 2015 9:23 pm
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poorhouse84
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I'm still working on this.

For now, the issue that is stumping me is bill due dates. For example, this is pretty much what I have:
5th
9th
10th
14th
16th
16th
18th
26th
28th
1st

I want to get the budget working where we pay everything slightly before the due dates. My thought in the last few days was to align our bill paying to twice a month (really every two weeks) - along with my wife's paydays. If we could do this, it would help because it would be easier to control everything in two large chunks.

Not to get off the subject, but related to what I just said: I think one of the major problems I have with money is that we just have so much going out here and there at multiple times during the month. It is hard to keep track of it all. I feel like if I could streamline certain things and minimize the time money leaves our hands, it would make it easier for us to understand the budget.

Back to what I was saying - When I started looking at paying everything every two weeks, I got messed up by the multiple due dates. In a previous budget attempt, I changed bill due dates to evenly disperse out throughout the month, so that we could afford to pay them as the money came. But now, looking at the situation, I'm not sure how I can make every two weeks work. In reality, the bills are a lot heavier on the last two weeks of the month, so it will become disproportional.

In other words, I'm paying a small amount of the bills in the first pay cycle.. The majority of the bills will come in the latter part of the month. I guess the only option here is to save some of the money designated for bills that we normally end up with at the halfway mark each month (wife's first payday) and then put that money with the end of the month pay cycle(wife's second payday). This would give us the needed funds to pay the bills at the second pay cycle.

Now, the first problem is the due dates. in order to make it work like that, I will not be able to pay everything right before its due date. some things will go over and we will get into the grace period. This is something I want to get away from, because before we know it, we are a week or two behind on certain things, and we won't be able pay it on time if we wanted.

The second issue is the fact that as the months progress, the pay dates fall further and further back within the month. January me be the 14th and the 28th, but February will be the 12the and the 25th. March will go back further and then April, May, and June - even worse. Then, at the beginning of July, that pay date rolls all the way back to the first, and it becomes one of two extra checks she will get throughout the year. The next is on the 15th, (right around schedule for the twice a month pay system to work).
Post Fri Nov 06, 2015 7:21 pm
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oldguy
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You have 10 bills distributed fairly evenly thru the month (one about every 3 days).

And you have 6.5 paychecks - your 4.33 and your wife's 2.17. Set the value of the 6.5 paychecks equal to the 10 bills, and have the extra sent to your savings or 401k.

Have the 6.5 checks autodeposited. Set up bill-pay for the bills. Don't use that account for other things - just the 10 bills. Put a buffer in that account that will cover the biggest bill. And then it should stay even month after month - at year-end it should have the buffer remaining.

But, again, this is not your budget, it is your cash-flow plan. And it really isn't very important - ie, you will spend that SAME amount of money in a year whether you break it into 6.5 chunks, 2 big chunks, whatever.

We've done his forever - our 2 SS checks go in, my pension goes in - our bills go out (some autotpay, some manual) - and we've never had a late-fee. It goes on month after month year after year - and there is always 2 or 3 thousand extra at year end. Like I said, that's our cashflow, not our budget. If your budget adds up to more than you put in, then it's your BUDGET that is wrong, not your cash-flow plan.
Post Fri Nov 06, 2015 8:50 pm
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littleroc02us
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Because your getting paid bi-weekly according to you (I know you said your's comes each week, but just put that sum into a bi-=weekly income budget), then because it's bi-weekly, your pay date will constantly be changing since there's 52 weeks in a year. For example, in January let's say you both get paid on the 15th and the 29th. Now in February your going to get paid on the 12th and the 28th. In March it's going to be the 14th and the 28th and so on. Eventually it gets earlier and earlier until it goes back up to the 15th. I hope that makes sense.
The point is that on your Zero based budget you simply make a new worksheet in Excel, one that represnets each bi-week. So you'd have a January 15th, a January 29th, a February 12th and so on. Under each work sheet you simply add the bills that need to be paid in that worksheet in the time frame that the paychecks for January 15th will pay for such as: the 18th, 26th, 28th, 1st, etc.... Then for the January 29th worksheet you add the bills that need to be paid for this pay period of the 5th, 9th, 10th, 14th, 16th, etc.....

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Fri Nov 06, 2015 9:03 pm
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poorhouse84
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quote:
Originally posted by oldguy
You have 10 bills distributed fairly evenly thru the month (one about every 3 days).

And you have 6.5 paychecks - your 4.33 and your wife's 2.17. Set the value of the 6.5 paychecks equal to the 10 bills, and have the extra sent to your savings or 401k.

Have the 6.5 checks autodeposited. Set up bill-pay for the bills. Don't use that account for other things - just the 10 bills. Put a buffer in that account that will cover the biggest bill. And then it should stay even month after month - at year-end it should have the buffer remaining.
.


Ok, the way we have it set up right now, My pay is direct deposited into our main account, which we call the bill account. my wife's pay is deposited into another account, either the spending account or the savings, I'm not sure which. It isn;t really a savings account, it is more just another account that gets abused by having money moved in and out of it.

I like the idea of having all the bills come out of one account. Like you say, they should stay about the same. I did some figuring. It turns out, if my pay stays constant (in other words if I work the same amount of hours each week), it should be able to cover every single bill we have. The only expenses not covered would be our gas and our groceries, which my wife could cover. Money is moved to the spending account for this purpose, so I guess it would already be there, in a sense.

The only problem comes in where if I happen to work short hours for a couple of weeks in a row, and my paychecks are less than usual. Then, there will not be enough money in the bill account unless she adds some money. This is not a problem, but it will take us a few months to get an excess built up enough to be a buffer in the bill account.
Post Fri Nov 06, 2015 9:41 pm
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